An Analysis of Loan Portfolio Management on Organization Profitability: Case of Commercial Banks in Kenya

Abstract

The banking sector in any economy serves as a catalyst for growth and development. Banks are able to perform this role through their crucial functions of financial intermediation, provision of an efficient payment system and facilitating the implementation of monetary policies. Bank profitability is usually expressed as a function of internal and external determinants. The overall performance and profitability of the banking sector in Kenya has improved tremendously over the last 10 years. The aim of this study was to close the gap in knowledge by investigating profitability determinants within commercial banks in Kenya. The determinants studied were loan portfolio, interest expense, and administration costs and assets value. A descriptive survey design was employed in this study. The population of the study was the management employees working for commercial banks in Kenya. The sample was accessed by use of both stratified and simple random sampling. A questionnaire was used to gather the primary information. The questionnaires were self-administered and were served to the respondents by self-introduction. Research assistants were used to follow up on duly completed questionnaires. Statistical package for social sciences (SPSS) was used to analyse primary data while the SAS v.6 of 2009 was used to analyse the secondary data gathered from the banks. Findings of the study showed that public sector banks and private sector banks were not much affected by increasing or decreasing of interest margin. It can therefore be interpreted that the profitability growth of public and private sector banks are not dependent on fluctuation of interest rate although the foreign banks have the benefit of high return due to increase or decrease in interest margin.

Key Words: Loan portfolio Management on organization profitability, commercial Banks in Kenya